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The introduction of mandatory workers’ compensation coverage for all construction businesses in Ontario will help limit the underground economy and benefit workers, contractors and society at large, a group that represents labour unions and contractors in the construction sector said.

The Ontario Construction Secretariat (OCS) said mandatory WSIB coverage, which came into effect Jan. 1, closes a loophole that allowed employers to classify employees as “independent contractors” and so evade taxes and workers’ compensation premiums.

“By closing this loophole, the government has taken an important step in prohibiting the underground economy in Ontario construction,” said Sean Strickland, chief executive officer at OCS.

Construction employers were previously required to have WSIB coverage for all employees. But the new law extends compulsory coverage to independent operators, partners and executive officers.

Strickland said workers will benefit greatly from mandatory coverage. When employers are no longer able to call them independent operators, workers will become part of the regulatory system.

“That’s not only bringing them into the WSIB, but also making sure they pay the requisite unemployment insurance and provincial and federal taxes. When you bring more workers inside the regulatory regime, that’s going to help workers’ safety,” he said.

In addition, Strickland said, the new rule will provide a more level playing field for all contractors. According to an OCS study, contractors who classify employees as independent operators gain a competitive advantage ranging from 20 to 50 per cent of labour costs.

Mandatory coverage will also create wider social benefits, Strickland said, in reducing extension tax and WSIB premium evasion. OCS research estimates that the use of independent operators results in the loss of $1.5 to $2.5 billion to federal and provincial governments, he added.

“By bringing in mandatory coverage and closing the loophole, governments are going to be able to recover some of that lost revenue and that, in turn, can be reinvested in public services,” he said.

But Plamen Petkov, director of provincial affairs, Ontario, for the Canadian Federation of Independent Business (CFIB), which represents small- and medium-sized companies, said his organization does not believe the move to mandatory coverage in the construction industry will effectively address the problem of the underground economy.

“It seems very unusual you’re going to implement a new premium, which is like a new tax, to get people who operate underground. What may happen is that you may actually force more people underground to avoid paying the premium,” he said.

“This simply adds an additional layer of financial burden to construction company owners."

Instead, he added, introducing tax credits for construction is far more likely to bring companies out. A federal home renovation tax credit a few years ago, for example, prompted many underground operators to register and pay premiums so they could take advantage of the program.

Petkov said a large number of the CFIB’s members are in construction and have expressed concerns about the new requirement. According to a federation survey, some members say it will cost them $11,000 a year.

“Especially with the economy the way it is now, this is not helpful,” he said.

Strickland said, however, he does not believe the new regulation change will drive companies to break the law. It will in fact, he said, serve to increase fairness and competition in the industry.

“At the end of the day, most contractors want to operate in a competitive and fair environment. That’s how our society works. I don’t see how it can drive people to the underground economy,” he said.

The new rule will also have a positive effect on apprenticeship and training in the province, Strickland said. When companies operate outside the regulated construction industry, they are not connected to established provincial standards and apprenticeship programs. There is also usually no record of apprenticeship, of certification or qualification.

“These types of workers have as little government involvement as possible,” he said.

“So by putting in place this regulation, you’ll be able to track these workers from the Ministry of Labour and the Ministry of Training, Colleges and Universities perspective and to help ensure they’re trained appropriately in safety and in skills required to be a construction worker in Ontario.”

The law requiring mandatory coverage includes some exemptions; for example, workers employed exclusively in home renovation. Also, companies may exempt a partner or executive officer who does not engage in any construction work.